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Corporate Close-Up: Do Tax Triggers Eliminate or Contribute to Uncertainty?

SALT TALK BLOG

Sep 12, 2016 / by

CORPORATE CLOSE-UP: DO TAX TRIGGERS ELIMINATE OR CONTRIBUTE TO UNCERTAINTY?

Five states have implemented a “tax trigger”—a corporate
income tax rate reduction conditioned on the jurisdiction meeting a
predetermined revenue goal, according to a study
recently published by the Tax Foundation.
“Tax triggers are gaining popularity because they eliminate some of the
uncertainty surrounding changes to the tax code,” the Tax Foundation’s Jared
Walczak told Bloomberg BNA’s Che Odom for the Weekly State Tax Report.

While tax triggers may reduce budgeting risks for lawmakers,
they will likely create greater uncertainly for taxpayers. The mechanisms the
states employ to set off the trigger “are nearly as varied as the benchmarks
they establish,” as the Tax Foundation’s report states.

The District of Columbia’s rate reduction is conditioned
upon the jurisdiction’s mid-year revenue estimate exceeding the initial revenue
estimate, according to the Tax Foundation. In Kansas, the tax cut trigger is
pegged at 2.5 percent year-over-year revenue growth. New Hampshire specifies
that a rate reduction will take effect when the state’s combined general and
education trust fund exceeds $4.64 billion.

It can be difficult to ascertain the status of a state’s
budget within a given year. Even if a taxpayer is able to do so, it could be
nearly impossible in some years to predict whether a tax trigger threshold will
be met.

State tax rates have long been one of the few certainties in
an area of law plagued by gray areas and a general lack of guidance. While
taxpayers will undoubtedly cheer a tax cut, the trigger provisions make it more
difficult to determine what the tax rate will be.

Continue the discussion on LinkedIn:
Do the benefits of tax triggers outweigh the uncertainly they create?

For
more information about state tax issues, sign up for a free trial on Bloomberg BNA’s Premier State Tax
Library.

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